Which of the following correctly explains the Taylor rule?
A) It links interest rates to short-term deviations in in?ation and output.
B) It maps the changes in actual and potential GDP over time.
C) It shows the trade-off between unemployment and in?ation.
D) It links the growth of money supply to changes in the price level.

Question

Quizplus · Accepted Answer

The Taylor rule is a monetary policy guideline that suggests how central banks should adjust interest rates in response to changes in economic conditions, specifically linking interest rates to deviations in inflation from its target level and deviations in real GDP from its potential level.

Which of the Following Correctly Explains the Taylor Rule